Gnomes can definitely fall into the "forgotten races" category. On first blush, they seem too much like dwarfs, and I wasn't even sure I wanted to include them in my AZ Adventures campaign. But the more I studied them, the more I realized, they definitely do fill a unique need, and they can be pretty cool.
They are not useful so much for their "power-gamer" or "stat geek" roles, since they don't really present anything unique in that regard, which is probably why they tend to get largely ignored, being largely "dwarf-lite". They definitely aren't as "iconic" as dwarfs or elfs in terms of popular culture and myth.
Perhaps we can also partly blame the 1e MM, because its description of Gnomes is not very inspiring, being mainly devoted to "wargamer stats", failing to highlight much unique about them. It archly hints at rare "magic use" among the Gnomes, but I mean, come on... little people who might secretly have some rare magic use... yawn, not exactly a game-changer... [We learn in the PH that this magic use is actually Illusionist powers]
Only in the DMG do we really see their personality shine through. Their true genius lies not in their wargamer potential, but in their ROLL PLAYING potential. Basically, Gnomes are the playable version of "the wee folk", i.e., they are like big leprechauns. As DMG p16 puts it:
-Lively and full of humor, esp. practical jokes at other's expense
-Love eating and drinking
-Sly and furtive with strangers
-A bit reserved around elves & humans
-Love precious stones, masters of gem polishing and cutting
-Similar to dwarfs, but like the upperworld as much as the underworld
Aside from their lively and fun personalities, Gnomes are unique for being natural Illusionists. Their prankster-sim, along with their illusion-making, definitely gives them a very unique angle in the game, and squarely aligns them with the trickster "wee folk" even more solidly. Think of them as devious little illusion-making tricksters, obsessed with gems, with a huge fondness/weakness for drinking.... Now we are talking!
They can even communicate with all burrowing animals... I am thinking they would definitely tend to have pet squirrels and moles and ferrets and such, acting like little "illusionist familiars", running messages, spying, checking for danger, playing tricks... THAT is a pretty cool feature, if you think about it.
PC Gnomes can reach up to 7th level as Illusionists, allowing them to cast up to 3rd level spells. The way I see it, all Gnomes would come with some basic illusionist skills, due to their inherent magical natures and general cultural knowledge, such as the ability to make small dancing lights or light bursts, false noises, to disappear mysteriously (in a burst of smoke or passing behind an object), that kind of thing.
In game terms, these "natural illusionist powers" are perhaps best suggested by the magic user and illusionist cantrips (given in 1e UA).
--The "person-affecting" magic user cantrips would be delightful in the hands of these tricksters: belch, giggle, nod, sneeze, twitch, yawn, wink...
--Imagine the "sound" cantrips in the hands of a little prankster: creak, footfall, groan, moan, rattle, tap, thump, whistle...
--The "legerdemain" cantrips are taylor-made for these gem-thieving types: distract, hide, mute (shape change), palm, present (object summoning)...
--And the illusionist cantrips, especially for the visual effects: colored lights, dim, haze, mask, mirage, noise, rainbow, two-d'lusion (2D illusion).
Gnomes are fun-loving and intelligent, seeking to avoid violence when possible. Only the very largest, toughest, and dullest of them seek careers as fighters. In general, most gnomes prefer careers as thiefs or illusionists, and most of them combine the two classes as dual-classed illusionist/thiefs.
Other Gnomish facts:
Gnomes are the second-longest lived demi-human race, behind only the elfs. A gnome won't reach breeding age until 60 or so, and the typical gnome will live past 500 before dying of old age. The are also among the brighter of the races, second in intelligence to only the elfs, and they have the best hearing of all the races.
Gnomes, like Dwarfs, are naturally "anti-magical" creatures, with naturally strong constitutions (8 minimum). On the downside, they are incapable of casting magic, but on the good side, they are resistant to magical effects. Based on their CON score, they get bonuses in their saves vs magic: 8-10--> +2, 11-13--> +3, 14-17--> +4, 18+ --> +5. They are also naturally +4 vs poison, a very nice attribute against such a "save or die" attack.
Due to their love of gems, gnomes are often mining underground, and have exceptional abilities in determining the direction and quality of underground construction. They also have limited infravision underground (detecting heat radiation).
Following their friendship with burrowing animals, they will always have some trained "family pets" to help guard their lairs, such as giant badgers or wolverines.
Against their arch-enemies, kobalds and goblins, they gain a +1 to hit. They are experts at using their small size to their advantage, so large creatures (such as gnolls, bugbears, ogres, trolls, giants, etc) suffer -4 to hit penalty in combat against them.
Older Gnomes (300+ years) can be called as holy men, acquiring clerical powers up to the 7th level.
They are a male-dominated society: with Gnome males outnumbering females 2 to 1.
In AZ Adventures
The center of Gnome society in AZ is in the southern Tonto Forest (mainly in the rockier zones south of Payson), north of the druid-controlled area of Fountain Hills, but they can found in any of the many areas of rolling, rocky hills throughout the region. Their lairs are always mainly-underground, built into the rocky hills, visible only to the trained eye, and always hidden by protective illusions.
Gnomes are mainly insular, in good relations with the dwarfs and halflings of the area, but are slowly learning to branch out in contact with the colonizing humans as well.